The table below provides some estimates of elasticities studied in this course. Use them to answer the questions that follow.| Type of Elasticity | Estimate ||--------------------------------------------------------------|----------|| Price elasticity of demand for cigarettes | -0.25 || Price elasticity of supply for cigarettes | 0.90 || Income elasticity of demand for cigarettes | -0.2 || Cross-price elasticity of demand for cigarettes and alcohol | 0.30 |**Which of the following is correct (based on the elasticity estimates above):**- ⃝ a. Cigarettes are a complement for alcohol- ⃝ b. Cigarettes are a substitute for alcohol- ⃝ c. Cigarettes are a giffen good- ⃝ d. Cigarettes are a normal good

Price elasticity of demand It is an indicator of how price-sensitive the quantity needed is. For…

Answered: Type of Elasticity Estimate -0.25 0.90…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Price elasticity of demand

It is an indicator of how price-sensitive the quantity needed is.
For practically every good, demand declines as the price rises, but more so for some goods than others.
When a price increases by 1% while all other factors remain constant, the price elasticity provides the percentage change in the quantity required.
If the elasticity is 2, a 1% increase in price results in a 2% decrease in the amount demanded.
Other elasticities quantify the relationship between the quantity sought and other factors, such as the demand elasticity based on income.

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